Banks are best judge of their own capital

The IEA’s warning comes ahead of Wednesday announcement by the Bank of England’s Financial Policy Committee (FPC) on the capital shortfalls faced by Britain’s major banks that is expected to see the body order lenders to raise as much as £60bn in new capital.

But the IEA said the whole system of capital regulation should be dropped and attention focused on making it easier for banks to fail.

“Once they are forced by the possibility of failure to take responsibility for their actions, [banks] are best placed to judge their own capital requirements,” said the IEA.